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Q1) Calculate the expected return on the stock of Dull Saw Corporation. The beta is estimated...

Q1) Calculate the expected return on the stock of Dull Saw Corporation. The beta is estimated to be 0.7, the market risk premium is 9.6% and the risk-free rate is 4%.

Q2) What is the profitability index for an investment with the following cash flows given a 10% required return?

                        Year                Cash Flow

                           0                   -$22,500

                           1                   $ 8,400

                           2                   $ 9,700

                           3                   $ 9,900      

Q3)

What is the (a) expected return and (b) standard deviation of the returns on a stock given the following information? (6 points)

                                                                                                                                            

                                    State of                        Probability of              Rate of Return

                                    Economy                     State of Economy       if State Occurs

                                    Boom                                      10%                    16%

                                    Normal                                    60%                    11%

                                    Recession                                30%                    -8%

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